SECTION 2. BACKGROUND

.01 Section 1120 of the Act amended § 168(e)(3)(E) to provide that 15-year property includes any § 1250 property that is a retail motor fuels outlet whether or not food or other convenience items are sold at the outlet. The legislative history of the Act provides that property will qualify as a retail motor fuels outlet if 50 percent or more of the gross revenues generated from the property are derived from petroleum sales, or 50 percent or more of the floor space in the property is devoted to petroleum marketing sales. A motor fuels outlet of 1400 square feet or less qualifies as a retail motor fuels outlet under the Act without application of either 50 percent test. If the property

initially meets (or fails to meet) the 50-percent test but subsequently fails to meet (or meets) the test for more than a temporary period, such failure (or qualification) is treated as a change in the use of property to which § 168(i)(5) applies. S. Rep. No. 281, 104th Cong., 2nd Sess. 14–16 (1996). Section 1120 of the Act also amended § 168(g)(3)(B) to provide that the recovery period for a retail motor fuels outlet is 20 years under the alternative depreciation system of § 168(g).

.02 Section 1120 of the Act applies to property depreciable under § 168 that is placed in service on or after August 20, 1996. Section 1120 of the Act also provides that a taxpayer may elect, in the form and manner prescribed by the Secretary of the Treasury, to apply § 1120 to property depreciable under § 168 that was placed in service before August 20, 1996. The legislative history of the Act provides that the Secretary may treat the election as a change in the taxpayer’s method of accounting for the property and provide rules similar to those provided in Rev. Proc. 96–31, 1996–1 C.B. 714. The legislative history further provides that if a taxpayer has already treated the property as 15-year property the taxpayer will be deemed to have made the election for that property.

.03 For certain changes in methods of accounting for depreciation, Rev. Proc. 96–31 provides an automatic, prospective method change under which the § 481(a) adjustment is taken into account in computing the taxable income in the year of change.

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section 2.01 of this revenue procedure; (2) is depreciable under § 168; (3) was placed in service before August 20, 1996; and (4) was not treated as 15-year property under § 168 in all taxable years since the property was placed in service or, if the property changed its use from or to a retail motor fuels outlet, in all taxable years in which the property was a retail motor fuels outlet.

.02 This revenue procedure does not apply to: (1) any property depreciable under § 168 prior to its amendment by the Tax Reform Act of 1986; or (2) any property for which the taxpayer will be deemed to have made the retail motor fuels outlet election. A taxpayer will be deemed to have made this election for: (i) property placed in service before the year of change (as defined in section 5.02 of this revenue procedure) that was treated as 15-year property under § 168 in all taxable years since the property was placed in service or, if the property changed its use from or to a retail motor fuels outlet, in all taxable years in which the property was a retail motor fuels outlet; and (ii) property placed in service during the year of change (or the immediately preceding taxable year) but before August 20, 1996, that was or will be treated as 15-year property under § 168 on the taxpayer’s original tax return for the year of change (or the immediately preceding taxable year).